In a season of depressing budget news, the worst may have been that a majority of House Democrats signed a letter urging President Barack Obama to oppose any benefit cuts to Social Security, Medicare, Medicaid and other entitlements.
By JONATHAN ALTER
Thats the last thing we need.
To hold the line on harmful cuts to discretionary spending, Obama and the Democrats must educate the public about the necessity of entitlement reform. Otherwise, the poor and needy largely spared by the automatic reductions under sequestration will get hit much harder down the road.
Liberals are right to reject GOP proposals that slash social-welfare programs even as they refuse to consider closing tax loopholes for the wealthy. And I agree that the sequestration will cut into important federal functions and investments in the future.
That makes two more reasons to start talking seriously about how we will pay for the insanely expensive retirement of the baby boomers.
How expensive? Anyone reaching retirement age in the next 20 years (including me) will take more than three times as much out of Medicare as he or she contributed in taxes. By 2030, the United States will have twice as many retirees as in 1995, and Social Security and Medicare alone will consume half of the federal budget, with the other half going almost entirely to defense and interest on the national debt.
If Democrats dont want to talk about these programs, they can say goodbye to every other pet program.
To reform entitlements, we should assess what these programs were meant to do in the first place. The animating idea behind them is social insurance.
FDR didnt have strong feelings about benefit levels, retirement ages or eligibility standards. He focused on what he called guaranteed return. By that he meant that having paid into the system through a kind of insurance premium (though in fact it was merely a payroll tax), Americans should rest easy that some money would be there for them if they lived long enough. The point was insurance against need.
Guaranteed return means no privatization or voucher system for these programs.
Insurance against need suggests keeping the focus on poor and middle-class recipients who depend on the money most. That means means-testing, giving wealthier retirees less.
Liberals generally oppose means-testing social-insurance programs. For decades theyve argued that if the wealthy dont get a heaping portion of Social Security and Medicare, it will undermine the political support of the programs and turn them into a form of welfare. Once that happens, the theory goes, the programs will be ended.
Like the word entitlements, this hoary idea should be retired. Social Security and Medicare are now so deeply in the marrow of the American middle class that they will never be seen as welfare. The question is not whether to reform them, but how.
Today, only the first $110,000 in income is subject to the 7.65 percent tax that pays for Social Security and Medicare. Lifting the cap to higher income levels (say $250,000 or $400,000) could eventually generate hundreds of billions of dollars.
Republicans consider this a tax increase. Thats true only outside the context of these programs. The change could be structured so that no one paid in more than actuarial tables estimate they will take out. That would still raise billions and be consistent with the idea of paying for your own retirement if you can afford it.
For lifting the cap to have any chance, it would have to be matched by reforms such as the chained consumer-price index, a new way to measure cost-of-living adjustments that Obama seems to favor. Liberals oppose chained CPI because it would theoretically result in lower benefits. But less frequent cost-of-living increases arent the same as cuts, especially if the current system is, as many experts believe, based on an inaccurate assessment of inflation.
Maybe there are better ideas for reforming social insurance. The point is, we better start talking about them. Otherwise, Grandpa and Grandma and their fellow Grateful Dead fans are going to eat all the food on the table.
Jonathan Alter is a Bloomberg View columnist.